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Why receiving big funding doesn’t guarantee startup success

(BUSINESS ENTREPRENEUR) You finally got that big funding check that allows you to make your dreams come true, but most startups fail because they shoot for the moon.

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The first thing every startup needs to get off the ground is funding. It’s crucial to have enough capital to cover equipment, inventory, and employee salaries, along with other basic expenses unique to the industry. Most startups cover these initial costs through business loans and capital from private investors.

Some business owners perceive getting funded as the first milestone toward success. While receiving capital is critical for success, being well-funded doesn’t guarantee success. Plenty of well-funded startups have failed, gone bankrupt, and all but disappeared.

How could so many well-funded startups possibly go under? The 90% failure rate for startups is due to a variety of factors including bad timing, no market, and most of all – mishandling of finances.

Here’s why receiving big capital doesn’t guarantee success.

Getting investment capital provides false hope

Getting funded can make you feel invincible and cause you to be too relaxed about spending money. It’s a powerful feeling to have plenty of money and know an investor believes in your business. Investors are smart; they wouldn’t throw money at a startup unless they had every reason to believe it will succeed, right? Not exactly.

Startups in big tech areas like Silicon Valley and San Francisco often have an easy time generating large amounts of capital from investors who can’t wait to throw money at the latest startup. Many investors ignore risk and throw their money at long-shot bets hoping to invest in the next Facebook or Instagram. The size of the pot is too mesmerizing not to take the risk.

These long-shot bets carry similar odds to winning a “Pick 6” bet in horse racing. The Pick 6 is one of the hardest bets to win because you have to pick the winning horses for six consecutive races. What if the top horse becomes injured before the sixth race? Investors who toss money at random startups have to pick a startup that will continue to meet all the right circumstances to become profitable long-term. Some of those circumstances are unpredictable.

No business owner wants to view their startup as a long-shot bet. However, the reality is that many startups are. You can’t gauge your potential for success based on how much funding you receive.

Having plenty of cash encourages premature scaling

When you’ve got the cash to scale your startup it seems like a waste not to dive in. Just one look around the internet reveals plenty of videos and articles encouraging entrepreneurs to scale their business. Advice online gives the impression that if you’re not scaling your business, you’re falling behind. However, scaling too soon can tank your startup.

Research conducted by Startup Genome found premature scaling to be the number one cause of startup failure. Nathan Furr from Forbes.com explains this finding and what it means for businesses. Premature scaling is defined as “spending money beyond the essentials on growing the business (e.g., hiring sales personnel, expensive marketing, perfecting the product, leasing offices, etc.) before nailing the product/market fit.” Furr says any business is susceptible to premature scaling – not just startups.

The problem is that premature scaling depletes your cash reserves more quickly. This leaves you with less cash to fix mistakes and readjust as you go along. Failure is what happens when you don’t have the necessary cash to fix mistakes and move toward success.

How to make the most of your funding and increase your odds of success

To increase the odds of developing a long-term successful startup, here’s what you can do:

Save as much money as possible. For instance, you don’t need a giant office with expensive furniture right away. Work from home and hire a remote team until an office is absolutely necessary.

Make sure the cost of acquiring each customer makes sense. Know how much money you’re spending to acquire each customer. Track all marketing efforts and eliminate the avenues that don’t generate paying, loyal customers. If the cost to acquire a customer is more than what they spend with your company, revisit your marketing strategy.

Aim for an order-of-magnitude improvement with your innovation. Skip Prichard advises startups to strive for a 10x increase in the value of whatever innovation is being provided to the world. For example, if your company is offering a lower price for a greater value, aim to increase the value 10x. Attract the early adopters who want big improvements and they will validate you.

Money is a tool – use it wisely

Celebrate when you get your funding, but keep that money in the bank for necessary expenses. Money is a tool that doesn’t guarantee success, but if you budget wisely, you’ll have a better chance at beating the startup odds.

Larry Alton is an independent business consultant specializing in social media trends, business, and entrepreneurship. When he's not consulting, glued to a headset, he's working on one of his many business projects. Follow him on Twitter and LinkedIn.

Business Entrepreneur

What to consider when relocating your business near the holidays

(ENTREPRENEUR) When can you pack everything up without disrupting operations, going offline, and sinking your sales? The answer may surprise you.

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boxes for relocating

If your business has outgrown its current space, it may feel like there’s never a good time to think about relocating. When can you pack everything up without disrupting operations, going offline, and sinking your sales? The answer may be during that post-holiday slump.

Though the holiday season is marked by increased shopping and general economic activity during the run-up, once the holiday season actually begins, we tend to see a slowdown that leads to low first-quarter profits. Decreased profits during this period don’t mean we’re looking at an overall economic slump, but rather that everyone is recuperating from holiday spending sprees, while companies assess and prepare to launch their start-of-year marketing strategies. It’s a time of renewal and reconsideration, from an economic perspective.

If you’re thinking about relocating your business this holiday season, you’re on track for decreased business disruptions, but that doesn’t mean you have an easy road ahead of you. Here’s what you need to know to execute the move smoothly.

Have a loose timeline

One of the most challenging things about relocating is that it can be hard to predict how long it will take to properly execute your move. That means, even if you tell your customers you’re relocating, you shouldn’t expect to give them a hard re-opening date. Rather, the length of time it takes to move tends to hinge on a number of factors, including distance, size of your business, infrastructure issues, and regulatory concerns, not all of which are easily predictable.

You’ll also want to leave some buffer time when planning your move because you can’t predict problems that might arise with the moving company. Bad weather or a broken-down truck can delay a move, especially if you’re working with a small company. Moving companies may also offer you a lower rate if you’re flexible with your move dates.

Consider your employees

Another question you’ll want to ask before moving is, “Where are my employees in all this?” Some companies firmly believe in giving employees holidays off, even if it means closing a profitable business like a restaurant during an otherwise profitable time. Other companies, however, typically assume employees will be in the office during or immediately after major holidays.

Regardless of your usual philosophy, you need to determine what role your employees will play in your move.

While they shouldn’t be responsible for the physical process of moving, do you expect them to participate in packing and setting up the new location? You should be clear about your expectations while recognizing that moving is outside the scope of typical job duties. You also will need to budget to pay your employees during this downtime while also financing the move, even though you won’t be bringing in a profit.

Mind the locals

If you’re primarily an online business, you may not have to worry about how relocating will impact customers – other than some downtime, these individuals will be minimally affected. However, for businesses that run a brick-and-mortar storefront, changing locations can have implications for your community relationships.

If you move outside your original area, for example, you may lose customer goodwill or even sacrifice some of your customer base altogether. Depending on the service you provide, they may come back, or they may find another option closer to home.

The holidays are a busy time in general, but they’re an unusual time for businesses since economically it’s the pre-holiday period that’s actually the most hectic. Take advantage of this imbalance to move your business with the least fuss during the last few days of the year or at the start of the first quarter. You’ll be pleased to find how smoothly a company move goes when customers are otherwise occupied.

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Business Entrepreneur

Choose your startup business partner wisely

(ENTREPRENEUR) Creating a startup business with a friend sounds amazing, but consider carefully if you may be better off as friends.

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Young couple working on startup together.

So, you want to be your own boss? Maybe get out and into a new career to crawl out from under the corporate drone motif? What better way to do it than to go into a startup business for yourself?

Hundreds of Americans have ideas that could turn into a new career. But not as many have the support structure, either financial or social, to make these dreams become a reality. A few of these people might look for someone to go into business with to help with the financial burden.

Can you think of a better way to start off a new business than with your best friend by your side? I sure as hell can.

My best friend and I get along great in our personal time. We’re both zombie horror nerds. He’s straight, I’m gay. He’s a cop, I’m an out-of-work geophysicist/bartender/writer – the jokes don’t quit with us. Our typical nights together include drinking at bars and smacking the other one upside the head as deemed necessary. We’re both slightly better than Neanderthals some days. And most importantly, neither of us should be trusted to work together.

Now of course that’s probably more specific to my situation, but let’s just realize that finding two people who can be the closest of friends and business partners is pretty rare.

There are a few people who have figured it out though and you can find a number of pointers online for new/established startup companies. A few of these tips include lots of structure to try and keep the fun at home and the business in the office, clearly defining roles, honest open communication, and strictly defining fiscal expectations.

So basically, it’s like committing to another marriage, which is what another set of people do for their startup business as well. Numerous married couples have put together careers and their relationships, and a great many of them are very successful.

So, if you have someone who you can commit to another potentially lifelong relationship with, and you trust to follow all of these rules, then go for it.

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Business Entrepreneur

4 easy ways to keep track of inventory this holiday season

(BUSINESS ENTREPRENEUR) Feeling overwhelmed by your inventory this year? Use these three simple tips to keep your stock managed for the end of the year.

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Man scanning inventory with tablet in one hand and a scanner in the other.

2021’s retail holiday season is in full swing. With it comes waves of purchases and shipments, both in stores and online. Holiday inventory management is essential to get the best handle on the continuous rushes. Organization, strategy, and automation are the 3 main steps to stay on top of inventory this year. Deliberate use of these will create a better setup for the coming months.

1. Organize

Organization takes many forms. In the stockroom, a messy workspace will slow down sales and shipments, making the entire store inefficient. However, with the right classifications, labeling, and management, the stockroom can become the leanest place in the store.

First, stores must have a point-of-sale system that can cleanly organize everything into actionable data, according to Software Advice. When a transaction occurs, the system logs it and, from there, employees can get a better understanding of what inventory is selling fastest.

In the back, employees can change the inventory layout to prioritize items that are selling well. Keeping that area fully staffed at all times may be the best move during the retail holiday season rush. For instance, employees can categorize clothing by material, size, and color.

The store will need to use a full-featured inventory management system. With it, employees can accurately track what goes in and out of the store through scanning barcodes and logging shipments. With a better handle on what consumers need, its location in the stockroom and better tracking, backorders, and sellouts can decrease.

2. Strategize

Retailers must have a clear strategy for holiday inventory. Otherwise, the rushes and high demands and orders can easily overwhelm employees and result in lost revenue. We are already seeing orders falling behind due to multiple shortages, including chips and even, employees themselves. Combined with organization, a plan should involve prioritizing customers’ needs and interests and increasing item accessibility.

Just as employees can organize the stockroom based on what consumers will be buying the most, they can also rearrange the store to put those items toward the front. That way, people can get what they’re looking for right away. This strategy will work online as well — where the site advertises the popular items on the main page.

Then, based on what POS and inventory management systems report, managers can order more sought-after items ahead of time. At home or in person, consumers get what they want without frustration, while retailers know the exact numbers in their inventory.

Another crucial area to focus on is in-store pickup. Some consumers don’t want to pay for shipping. Instead, in-store pickup ships their order to the nearest retail location, where they can quickly claim it. Especially during the holiday rush, designating a separate section for these items will be essential for a strategic inventory.

3. Automate

Automation is a broad topic when it comes to holiday inventory. With this wide scope, though, retailers can integrate countless systems to conquer the rushes more effectively. Helpful gadgets and organization equipment include Internet of Things sensors and big data. They will go a long way in monitoring inventory at all times.

IoT sensors are small and practical. While they can attach to any items in the stockroom, they’ll be invaluable for everyone along the supply chain to use. The sensors show merchandise’s exact location and specifications, which an inventory management system will automatically present in actionable ways.

When retailers use the information from sales and inventory, it falls under the category of big data. With the right analytics and prediction software, employees can use this data to understand coming trends and better understand what they’ll need to order and when.

If businesses — retail and warehouses alike — are looking for an efficient way to find stock without wasting time, they can use robots to retrieve it. These autonomous robots cut down on search times when they know the exact location based on IoT sensors or barcode scanning.

4. Make Post-Holiday Changes

The work continues even after the retail holiday season ends. However, businesses can take steps to optimize their setups for months afterward to keep drawing people in through next year’s holiday season.

The first step is to declutter. Get rid of things that will no longer be a priority to most consumers. A sale or clearance section is an efficient way to profit from obsolete inventory.

Then, it’s time to step back and reevaluate the landscape. What has changed for consumers? What new trends are emerging? Social media will be invaluable to track how customers want to spend their money in the coming year. It’s also a critical place to build an e-commerce presence for the future.

A Lasting Central Inventory

Year-round, but especially during the holiday season, inventory must be a critical factor for any retailer or warehouse. With better organization, strategy, and automation, the workplace can run more smoothly. These factors will also improve communication across the supply chain, making the holidays a profitable breeze for all retailers.

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